An improving economy has softened the blow, but state cuts still mean big changes for local governments

Oct. 18, 2013

Written by

CentralOhio.com

Statewide, local taxes to rise

The following are the state’s fiscal year projections for total tax dollars collected. The projections are are rounded to the nearest $1 million.

Tax type

2013

2014

2015

Sales

$1.998B

$2.13B

$2.253B

Income

$5.059B

$5.331B

$5.618B

Property

$13.309B

$13.924B

$14.48B

Source: Ohio Office of Budget and Management

Local government funds

Income tax collection in Mansfield dipped during the Great Recession but is starting to bounce back. The columns show total income tax collections, income taxes transferred to the general fund and total local government fund collections. Dollar amounts for 2013 are through Sept. 30.

Mansfield

Income tax

General Fund income tax

Local Government Fund revenue

2008

$24,904,864

$13,842,567

$3,053,292

2009

$22,743,937

$12,193,229

$2,633,017

2010

$22,888,941

$12,948,617

$2,655,734

2011

$23,573,149

$12,492,926

$2,655,380

2012

$23,335,974

$13,073,986

$1,868,291

2013*

$18,327,962

$10,284,316

$982,383

Source: City of Mansfield, *Through Sept. 30

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The statements are as bold as they are opposing: “Chillicothe’s revenue up, expenses down.” “There is no Ohio miracle. There is a Chillicothe disaster.”

The first is a Chillicothe Gazette headline from June, and the second is a comment from a Chillicothe councilwoman in August blasting state policy toward local governments. They encapsulate the environment and challenges being faced by local governments across Ohio as they enter the 2014 budget season.

Since the approval of the state budget, Gov. John Kasich’s administration has touted how its policies have helped expand the economy — an expansion that is helping local governments recover from recession.

“Communities across the state are seeing evidence of Ohio’s rebounding economy, which produces the added benefit of increased revenues for our local communities,” Lt. Gov. Mary Taylor wrote in an opinion piece. “You can see this reflected by more and more news headlines that say ‘revenues up, expenses down,’ ‘better’ revenues and ‘elimination’ of deficits at the local level.”

In fact, she notes 85 percent of the state’s revenue goes to local governments and schools and the state’s total contributions to local communities have increased over time.

Democrats and local leaders, however, say they still are struggling to provide services since the state balanced its budget on their backs.

“It is clear ... that people all across are deeply concerned about tax policies that disproportionately favor the top and hurt working- and middle-class Ohioans,” Rep. Tom Letson, D-Warren, said in a September news release. “The impact of this tax shift has been made worse by deep cuts to schools and local communities over the last two state budgets.”

In reality, many Ohio communities are doing better economically as the state and nation pull itself out of recession. Sales tax receipts are up, as are local income tax revenues — both are expected to see 5 percent gains statewide in the next two years. But the changes in state support to local governments were drastic, especially in certain revenue streams for counties and municipalities.

Money from the local government fund has been cut in half since 2011, changes in personal property tax laws have eliminated hundreds of millions of dollars in revenue and the elimination of the estate tax has ended a sporadic, but sometimes needed, revenue source for communities.

“Local governments really have lost a lot of state aid since the 2010-2011 budget period. It continues to have an impact on services across the state,” said Wendy Patton, of the progressive Policy Matters Ohio.

Randy Cole, state Controlling Board president and Kasich policy adviser, said the state is not walking away from the fact the local government fund was cut in half, but instead is trying to put that cut in context with the entirety of support the state gives to communities. He said Kasich’s policies have improved the state’s bottom line, allowing it to cut taxes and improve the business climate in an effort to encourage economic growth.

“If we do, both state and local governments will have what they need,” he said.

Drastic cuts, slow recovery

The pace of recovery from economic growth, however, has not matched the sometimes severe cuts felt by local governments. In Chillicothe, for example, the city lost roughly $400,000 in local government fund revenue since 2011. In that same time, income tax revenues have risen by roughly half that amount.

“The cuts were swift,” said Chillicothe Auditor Luke Sweeney. “There is just no way to make the (economic) growth match that.”

The cuts forced the state’s first capital to cut police and fire staff, which Sweeney said has had a direct effect on people’s quality of life in the city. An unscientific survey by the Ohio Municipal League showed many other communities were looking at layoffs, raising taxes or fees or cutting service levels and capital expenses.

But Cole said communities across Ohio are making drastic changes in how they govern in an effort to reduce costs and fit services to their budgets. The state even has a website, beyondboundaries.ohio.gov, to show how the state supports local governments and how local governments can work together better.

Feeney said Chillicothe is starting a partnership with Cleveland to better track which residents are not paying city income taxes. While the city can likely track people who either work in Chillicothe or own a home there, it is much more difficult to find someone who works in another community and rents in town. The partnership with Cleveland will allow the city to cross-reference IRS data to track people avoiding the tax.

“We have to get every penny that is ours,” he said.

State reversal unlikely

The cuts to support for local governments are unlikely to be reversed, Cole said, as the state focuses its policy on growing the economy. In fact, the cuts to cities, counties and other local governments were intentional because they “have the most ability to raise revenue through other means,” he said.

He noted the local government fund formula isn’t likely to change, but it is expected to grow as the state collects more revenue.

“We’re not abandoning local government,” he said.

There hasn’t been a massive rush to the ballot box with local options over the past few years. Local governments have sought more than 900 issues in each general election since 2009. But some cities are trying to raise more money. In Mansfield, city leaders are trying to raise the income tax by 0.25 percentage points to help fill a budget deficit.

“We used to have eight people in the Parks Department, mowing and taking care of the grounds. Now we’re down to one part-time person,” Mansfield Mayor Tim Theaker said recently.

Cole said philosophically it makes some sense to pay for services at the level where they are delivered. That way, local voters have more influence on the taxes they pay and the services they receive. State aid is determined on a per capita basis, which is not efficient, nor does it reflect local needs.

Feeney said such a scenario is fine in theory, but local governments had counted on that money for years to help pay for services. Making cities more self-sufficient could work, but the state should have made the change more gradual.

“It just didn’t seem like there was a plan to help cities transition,” he said.